On Tuesday the Portuguese government announced an astonishing low bid of €0.0147/kWh for solar electricity had secured generation capacity in the country’s first solar auction, with €0.020/kWh the average bid received in the procurement.
However, Antonio Delgado Rigal – chief executive of Spanish energy forecasting service AleaSoft – said the ‘record price’ of €0.0147 does not reflect the price of PV power.
He told pv magazine that price would be unprofitable for a solar project anywhere in the world. “This price does not exist in the market and it is not even an indicator of the future price of power in the electric market,” he said. “This is a price coming from a complex auction of which we still don’t know all of the details.
“Nobody can build a solar park and offer this price. Although we can only speculate now, as the details of the auction are not known yet, I can say that the price of €0.01470/kWh can be a deterrent as it may prevent new entrants from joining the solar race in Portugal, ” he also affirmed. “I do not intend to cast a shadow on the auction, which was absolutely transparent.”
“We are not questioning the auction’s results, I want to be clear on this.” he added. “The auction, however, may include some conditions that we don’t know yet, which may have made such an offer possible.”
Delgado said the bidder behind the offer may have sufficient financial resources to ensure it does not need third-party financing for the project. “This could have some counterpart in some sense, from the point of view of securing market shares, for example,” said the Aleasoft chief exec.
Possible negative impact
Delgado believes the latest world record low price – if confirmed and the bid is accepted – may have negative consequences for the burgeoning private power purchase agreement (PPA) market on the Iberian peninsula.
“These prices are a disincentive for several investors which expect much higher prices for bilateral PPAs linked to solar parks,” said Delgado. “These prices are apparently good news because this is clean energy, but are negative for investors, developers and new market entrants. Of course, intensive energy companies after this auction will require to buy power at around €0.020/kWh and PPAs at €0.040/kWh will become more difficult to secure.” The Aleasoft chief said all the PPAs recently signed in Spain were at a price well above €0.030/kWh. “The auction’s result, however, should not raise false expectations – you can’t buy a gold Rolex at €100,” he said.
Electricity prices are on the rise, said the chief executive, and may increase further. On the Scandinavian Nord Pool electricity market, prices are at an historic high. A year ago, buying on the market was cheap. In Spain too, prices keep rising because of an increase in the price of CO2 emissions.
More auction details
Portuguese financial newspaper Dinheiro vivo has revealed more details of the auction’s results. It reported around 1.15 GW of solar generation capacity was allocated – short of the planned 1.4 GW. Of the assigned capacity, the newspaper reported, 862 MW were for projects with a fixed tariff while the remaining 288 MW went to projects bidding a variable tariff.
The article added, Spanish energy company Iberdrola and French independent power producer Akuo Energy were the auction’s biggest winners, the latter with the largest amount of assigned capacity, at 370 MW, and with the Spanish utility securing the most projects – seven of the 22 allocated. The article also reported Portuguese energy companies including EDP and Galp were among the bidders to fail to secure any generation capacity.
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Thanks for the interesting article.
However, there’s a crucial missing number. If it’s clear to the writer that the contract price of about 1.5 euro cents is not the sustainable price of PV, he must have in mind an estimate of what IS the sustainable price of PV. So, is it possible to share what that number is? There was a bid in the US not long ago that was also very low, although not as low as the Portugal project:
https://reneweconomy.com.au/coal-and-gas-on-notice-as-us-big-solar-and-battery-deal-stuns-market-60011/
Does the author have a sense of whether that one is a sustainable price? It includes some tax credits, so those maybe need to be factored out again.
My mind is still fixed in prices almost an order of magnitude higher, but there’s a large gap between what I believe is sustainable (which is, say, 6 to 12 c US) and what these bids are offering.
Thanks again.
impossible to give a sustainable price for all markets, every project and markets have their own issues and dynamics
We saw the “not sustainable” argument also after the successful first subsidy free 750MW offshore wind tender in The Netherlands (NL).*) The tender produced 4 subsidy free bids (Vattenfall won).
That was spring 2018.
This summer, similar tender produced 5 bids despite that the winner now has to pay ~€2million/year (inflation corrected from this year onward) for the license to use that stretch of the sea.
Dutch govt would have asked more but there were legal problems with that and the law change wasn’t ready yet.
So the “not sustainable” argument is only an emotion. Even lower solar prices will come as prices for solar panels and inverters will continue to decrease. Think about below 1cnt/KWh in Portugal.
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*) Dutch govt predicted an av. whole sale price of 2.9cnt/KWh in 2035.
The winners are obliged to install the whole wind farm within 4 years after signing the contract, maintain and operate it decently, and decommission the wind farm decently. Such that the sea is back in its original state after 30years.
Penalties apply when the winner doesn’t meet his obligations. Bidders had to deliver bank guarantees high enough to cover all costs and penalties when owner doesn’t meet his obligations.
E.g. Dutch govt can then clean the sea after 30years using the bank guarantee to cover the costs.
Btw.
If the wind turbines still operate fine, the owner can ask to prolong his license 10years. Dutch govt may then grant that against then to be determined conditions.
The auction wasn’t secret. Surely reporters can find out what the conditions were. Specifically, was it a one-way CfD, guaranteeing only a floor price but allowing the project owner to pocket higher spot prices if there are any? British offshore wind CfDs are two-way: if spot prices are higher, the contractor refunds the excess over the CfD price to the government.